Innovation Freeze

We've come to depend on states as the source of new policy ideas. They
aren't producing many right now.

Donald is a Governing columnist, former dean of the School of Public Policy at the University of Maryland, a nonresident senior fellow at the Volcker Alliance and a nonresident senior fellow at the Brookings Institution.

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For the past two decades, states have been crucibles of public policy creativity. What happens if budget problems snuff that out, at least for a while? Can the federal government pick up the slack? Apparently we will get a chance to find out.

It's already pretty clear that this year's flood of red ink has powerfully distracted the nation's governors and state legislators. And it's impossible not to notice a precipitous decline in policy initiatives that have been bubbling up from state capitols all over the country since the 1980s. There's plenty of clever thinking in state capitols, but most of it has to do with stemming the budgetary hemorrhage, not solving long-range problems. The states may still be "laboratories of democracy" but their big thinkers are starting to look like mad scientists.

The state policy initiatives of recent years have not been the property of one party. The current climate of short-sightedness is bipartisan as well.

Republican Governor Tommy Thompson of Wisconsin championed a welfare reform program that became the national model embraced by both the Republican Congress and President Clinton. Now partisan sniping in Wisconsin has become so intense that elected officials are spending most of their time trying to box each other into inescapable corners.

California's Democratic leaders worked patiently for years to develop tough and innovative auto emission policies for the catalytic converter and global warming. Now the state is weighed down by a mega- deficit and a WWF-style heavyweight grudge match.

Other states are squeezing their tax systems to wring out any new short-term revenue gimmick they can find. Connecticut is increasing its inheritance tax--but only for people unlucky enough to die between April 1 and October 1, 2004. New Jersey is extending state taxes to the "comps," the free rooms, drinks, and meals that casinos extend to their high rollers.

With money tight in almost every state, politicians sound exhausted by the budget battles. They seem more than willing to allow symbols to trump substance. The battle over displaying the Ten Commandments has weighed down Alabama politics and is spilling over to the gubernatorial election in Mississippi, where the two candidates both insist they would be happy to move the Commandments monument to their side of the border.

A generation ago, a period of exhaustion in state politics wouldn't have mattered much because most of the big policy ideas were coming out of Washington: Over a period of 25 years, the federal government created the interstate highway system, the War on Poverty, Medicare and Medicaid, and the Environmental Protection Agency. Federal officials invented block grants and helped improve housing for poor Americans.

As federal deficits mounted at the end of the 1970s, however, federal energy began to lag, and it never really revived. In the past two decades, federal officials simply have lacked the confidence that they could produce solid results and, besides, they have been short on money to pay for expensive initiatives. In his first inaugural address, Ronald Reagan argued that "government is not the solution to our problem. Government is the problem." He set out to freeze, privatize and dismantle as much of domestic policy as he could.

Since then, both Congress and the executive branch have been preoccupied by foreign policy and by social entitlements that eat up most of the domestic budget. Thanks to tough decisions by both Democrats and Republicans--and thanks even more to a bullish economy-- the deficit went away in the late 1990s. But in the past few years, the bearish economy, new spending for defense and homeland security, and large tax cuts have covered future federal budgets in red as far as the eye can see.

Some of that is no accident. The Bush administration has been quite frank in admitting that it sees big deficits as a brake on liberal Democratic policy aspirations. By choking off the cash, the administration and the Republican Congress can restrain the growth of the federal government.

In short, the federal government has gradually been dealing itself out of the domestic policy initiative business. The small army of Democratic presidential candidates is pledging to change that, but the looming deficits and the impending retirement costs of the Baby Boom generation won't leave them much room. If anything emerges in the near future, it is likely to be a prescription drug plan for the elderly--a potentially huge (and hugely expensive) deal but one that will do little for the states.

Meanwhile, state officials face continued budget battles that will leave little policy energy and even less money for new ideas. The public appetite for new programs scarcely has diminished, but there's no way to satisfy it in the short term.

And so we will probably need to content ourselves with meager debate on policy and more emphasis on symbols. Struggles such as the ones over Alabama's granite Ten Commandments and Arnold Schwarzenegger's threat to terminate Gray Davis are likely to be the norm for some time.

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Donald is a Governing columnist, former dean of the School of Public Policy at the University of Maryland, a nonresident senior fellow at the Volcker Alliance and a nonresident senior fellow at the Brookings Institution.